24.6 Corporate Clients

• Library: The Attorney-Client Privilege and the Work Product Doctrine: A Practitioner's Guide (Virginia CLE) (2013 Ed.)

24.6 CORPORATE CLIENTS

24.601 Introduction. Chapter 6 of this book addresses the privilege's ownership in the corporate setting, as well as its applicability to various communications.

The power to waive the corporation's privilege generally follows the same principles. For instance, only upper-level executives may generally waive the privilege, although courts disagree about the level of loyal employee whose disclosure might waive the corporation's privilege. Some courts find that lower-level employees simply cannot waive the corporation's privilege, while other courts conclude that anyone with whom the corporation entrusts privileged communications can waive its privilege. Former employees can waive the corporation's privilege only in very narrow circumstances. Not surprisingly, adverse current or former employees cannot waive the privilege, because their disclosure inevitably attempts to favor their interests at the expense of the corporation's interests. Although not many cases have dealt with it, waiver issues also arise when employees or former employees hope to use the corporation's privileged communications defensively, to protect themselves.

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The issue of waiver in the corporate context generally makes it to the courts only if someone (i) tries to stop the corporation from waiving the privilege or (ii) argues that a constituent's actions did not actually waive the privilege. Thus, the case law almost always involves either an individual constituent's efforts to avoid the corporation's disclosure of communications that would harm him or her, or the corporation's efforts to avoid the ill effects of a constituent's unilateral disclosure of privileged communications.

24.602 Successor Management. Chapter 6 of this book discusses successor management's ownership of the corporation's privilege. This includes the power to waive the corporation's privilege. In the waiver context, such successor management normally includes bankruptcy trustees. For instance, in 2012 the District of Minnesota held that an LLC's receiver could waive the LLC's privilege. ⁹¹

24.603 Jointly Represented Corporations. Chapter 5 of this book discusses the general rules covering the privilege's ownership (and thus the power to waive the privilege) in a joint representation context. Chapter 6 discusses how those general rules apply in the corporate context.

24.604 Jointly Represented Corporations and Employees. Chapter 6 of this book addresses the privilege's ownership if a lawyer jointly represents a corporation and an individual. The waiver implications of such a relationship follow from the privilege's ownership.

Thus, an individual employee who is being represented by her own lawyer has sole power to waive the privilege. ⁹² In nearly every situation, an individual who has received the proper Upjohn warnings has no power to prevent the corporation from waiving the privilege that protects the communications, because the individual employee is not a joint client of the lawyer. ⁹³ In a true joint representation of a

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corporation and an employee, the standard joint representation rules apply. Chapter 5 of this book discusses those issues generally, and Chapter 6 discusses them in the corporate context. This chapter discusses the waiver implications.

24.605 Loyal Current Employees. Every court recognizes that the corporate entity is the actual "client" in the corporate setting. Most states have moved from a "hierarchical" test to the Upjohn "functional" test in determining which corporate representatives may enjoy privilege protection when communicating with the corporation's lawyer. Chapter 6 of this book discusses these issues.

The power to waive the corporation's privilege involves a related issue. The functional test rests on the need for a corporation's lawyer to obtain necessary facts from employees within the corporation. Thus, a company's mail clerk might have facts that the lawyer needs before giving legal advice to the corporation. The possession of important facts does not correlate to power within the corporation to set policy or to waive the corporation's privilege. Thus, to analyze waiver in a corporate setting largely involves a return to the "hierarchical" standard because it focuses on a corporate constituent's authority to act on behalf of a corporation rather than on the constituent's possession of facts.

Debates about whether an individual executive can waive the corporation's privilege normally arise only if the individual officer wants to disclose communications to favor his or her own interests or has disclosed privileged communications without realizing that the disclosure might cause a waiver. Thus, it is dangerous to rely on holdings of those cases without knowing the circumstances.

Those elected by a corporation's shareholders to manage the corporation generally have the right to waive the corporation's privilege. These include:

• Officer and director; ⁹⁴

• Corporate board of directors; ⁹⁵

• Current management; ⁹⁶

• Owner and officer of a close corporation. ⁹⁷

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As one moves down the corporate hierarchy, case law becomes much less clear.

Courts must sometimes wrestle with the power of a mid-level executive to waive a corporation's privilege. For instance, the Northern District of Florida dealt with this issue in a 2010 case. ⁹⁸ In that case, Merrill Lynch's "Senior Vice President for pension fund consulting in the state of Florida" made a presentation to a pension fund board of directors. ⁹⁹ He arguably disclosed privileged communications during the presentation, and the third party claimed that he had waived Merrill Lynch's privilege. The court found that the individual's title was not dispositive.

Attorney argument and Callaway's mere job title in a large company do not demonstrate that Callaway was a corporate privilege holder with access to the privileged information Plaintiff seeks or had the authority to disclose such privileged information. Callaway's title alone provides little insight into his knowledge of the outcome of the investigation, which notably targeted his own office and procedures. ¹⁰⁰

The court ultimately concluded that "[h]ere, the context as a whole reflects little, if any, of Callaway's actual authority within the company. Nothing suggests he was a chief executive officer, director, or the corporation's legal representative." ¹⁰¹ Thus, the district court reversed the magistrate judge's finding that the executive had waived Merrill Lynch's privilege. ¹⁰²

Courts have held that the following corporate executives may not waive the corporation's privilege:

• Vice president and sales manager; ¹⁰³

• Comptroller. ¹⁰⁴

Not surprisingly, a mid-level executive disclosing a corporation's privileged communication might waive the privilege if the corporation does not take steps to protect its privilege. For instance, in one case ¹⁰⁵ a magistrate judge initially held that AT&T's regional manager had waived AT&T's privilege by disclosing its law firm's legal analysis to another company, which had a contractual relationship with AT&T. The district court judge vacated the magistrate judge's conclusion and remanded for

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a factual determination assessing the manager's authority to waive AT&T's privilege. On remand, the magistrate judge found that the manager did not have actual or apparent authority to waive AT&T's privilege. However, he concluded that AT&T had acquiesced in (and therefore ratified) the manager's disclosure. The judge pointed to the manager's testimony that he advised AT&T's in-house lawyers that he was making the disclosures to the other company and noted that the manager copied an AT&T in-house lawyer on an email that disclosed that advice. The judge also emphasized that AT&T waited three years to claim that the manager lacked authority to waive AT&T's privilege. ¹⁰⁶

The same factors affect the analysis at the regular employee level. Chapter 6 discusses the "need to know" standard. That standard focuses on corporate employees' job requirements, and their need for a corporation lawyer's legal advice in the performance of their corporate duties. Presumably, employees with a "need to know" have the power to waive the corporation's privilege if they are acting in its interests as opposed to their own interests.

Some courts hold that an employee acting in the corporation's interest and with authority to handle privileged communications can waive the corporation's privilege. ¹⁰⁷ On the other hand, several courts have held that regular employees do not have the authority to waive the corporation's privilege. ¹⁰⁸ In 2011, a New York court distinguished between an employee's authority to negotiate a contract on behalf of a corporate employer and authority to waive the privilege.

In Mr. Johnson's affidavits, upon which plaintiffs rely, Mr. Johnson merely alleges that he was authorized by Acadia Realty Trust to negotiate with plaintiffs and communicate with plaintiffs regarding the zoning agreement and parking issue. Mr. Johnson does not assert that Acadia Realty Trust authorized him to release privileged or confidential documents to plaintiffs or that

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Acadia Realty Trust knew he had released confidential documents and then failed to object. ¹⁰⁹

Thus, courts take different positions on the ability of a lower-level employee to waive a corporation's privilege.

While it seems obvious that a constituent not acting in the corporation's interest should not be allowed to waive the privilege, the outcome is not as clear if an employee discloses privileged communications while acting in the corporation's interest. For instance, a salesperson being pestered by a customer for a certain contractual term in a sales agreement might send the customer a legal analysis that the salesperson has received from the corporation's law department, without realizing the possible waiver effects of such a disclosure...